Eurozone inflation fell sharply again in November. Prices declined a slightly steeper revised 0.6 percent on the month, leaving the yearly inflation rate unchanged from its 2.4 percent flash estimate and down from October's final 2.9 percent. This was its weakest reading since July 2021 and puts the overshoot versus the medium-term target at just 0.4 percentage points.

The annual core rates were similarly unrevised. Hence, the narrowest measure remains down a hefty 0.6 percentage points at a 3.6 percent, its lowest print since April 2022. Excluding just energy and unprocessed food, the rate declined an even sharper 0.8 percentage points to 4.2 percent. Elsewhere, inflation in non-energy industrial goods decreased from 3.5 percent to 2.9 percent while services dropped from 4.6 percent to 4.0 percent, the latter's fourth successive fall. Energy (minus 11.5 percent after minus 11.2 percent) and food, alcohol and tobacco (6.9 percent after 7.4 percent) also had a small negative impact.

There is nothing particularly new in today's update. Headline inflation is very likely to rise this month due to base effects but over 2023 as a whole, the fall has been surprisingly sharp. Consequently, financial markets will begin next year with high hopes for a series of interest rate cuts in fact, all the more so with the Eurozone's RPI now at minus 23 and the RPI-P at minus 32.

No revisions are expected leaving a 2.4 percent headline inflation rate, down from October's final 2.9 percent, and a 3.6 percent narrow core, down from 4.2 percent.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.